Harless Tax Blog

Harless Tax Blog

Safe Harbor 401(k) Plans for Small Companies

Thursday, March 23, 2017

Among employer-sponsored retirement plans, 401(k)s have become the standard. Some prospective employees assume that a job will come with a 401(k). Therefore, offering a 401(k) at your company may help you hire desired workers, and help you retain valued employees.

That said, there can be drawbacks to sponsoring a traditional 401(k). Such plans require annual testing to ensure that a 401(k) does not discriminate in favor of highly compensated employees, including owner-employees. Failing such a test may limit the amount that company principals and certain others may contribute to the plan, resulting in a reduced tax-deferred retirement fund for key individuals.

One solution is to offer a safe harbor 401(k) for your small business. A study released in late 2016 by Employee Fiduciary, a 401(k) provider for small businesses, found that 68% of the small firms responding to the survey use a safe harbor 401(k) plan design to avoid annual nondiscrimination testing. A safe harbor 401(k) allows sponsoring companies to avoid these tests, providing the business makes certain contributions to employees’ accounts. The mandatory employer contributions are always 100% vested.  See More

Avoid these red flags that can trigger a tax audit

Monday, February 20, 2017

Original Article by Tom Anderson.

Your chance of a tax audit is low. Only about 0.7 percent of tax returns receive an audit from the IRS.

Yet before you take your chances with some dodgy deduction, know this: That figure jumps to 9.5 percent if you make $1 million or more annually.

"The more money you have, the more of a chance you have of being audited," said Dave Du Val, chief consumer advocacy officer at TaxAudit.com, an audit defense company that handles more than 25,000 audits per year.  See More

How to avoid a 50 percent hit on your retirement savings

Friday, December 30, 2016

Source CNBC. Read Original Article

Putting your RMD to work Make the most of your required minimum distribution Thursday, 19 Nov 2015 | 7:00 AM ET | 01:08 The clock is running out on retirees who haven't taken enough from their retirement accounts this year.

IRS rules on the so-called required minimum distributions generally kick in once you reach age 70½. For 401(k) plans and other defined contribution plans, it's either when you turn 70½. or you retire, whichever is later. If you've inherited an IRA, you might also be subject to RMDs, even if your own retirement is years away.

How much you need to take is usually based on the account balance at the end of the previous year, and your life expectancy based on your age. Fail to withdraw enough, and there's a 50 percent penalty on the shortfall.  See More

Did You Know?

Thursday, December 01, 2016

A majority of 401(k) plans offer only one source of investment advice to participants. However, it appears that plan sponsors are starting to reconsider this approach. Some sponsors are adding new forms of advice: 27% are likely to start offering access to an adviser and 25% are likely to give participants access to one-on-one advice from a third party.  See More

Safe Harbor Deadline is October 1

Sunday, September 13, 2015

Just a quick reminder that the deadline for setting up new 401(K) Plans with the Safe Harbor provision is quickly approaching. All new Safe Harbor plans for 2015 must be in place by October 1, 2015.

The Safe Harbor 401 (K) plan is one of the most popular retirement plans that business can have.  Safe Harbor 401 (K) plan makes it easy for small and entrepreneurial business owners to maximize contributions to their own accounts while keeping employee costs manageable.  You have until October 1 to establish a new Safe Harbor 401 Plan for calendar year 2015.

The Safe Harbor Plan 401 (K) plan allows owners to:

  • Contribute the maximum annual deferral amount to their own 401 (K) plan ($18,000 or $24,000 if age 50+)
  • Receive additional Safe Harbor contributions (they are an employee too!)
  • Reduce the challenges associated with the 401 (K) non-discriminating testing

The Safe Harbor 401 (K) Plan makes contributions in one of the following two basic formulas or numerous variations:
  • Non-Elective - Contribute 3% of compensation to all eligible employees
  • Basic Match - Match 100% of the first 3% plus 50% of the next 2% of compensation.
If you have an existing 401 (K) plan without a Safe harbor feature it can be added to take effect beginning 2016. See More